Green mortgages have seen significant growth in the last few years. The Green Finance Institute found that there were four green mortgage products on offer in 2019, compared to 61 today. But, despite this increase, a recent survey by David Wilson Homes found that 80% of homeowners were still unaware of what green mortgages are and their benefits.
We spoke to a number of mortgage experts, including those at the banks who offer green mortgage products, about who they’re best suited to and what to watch out for.
What are green mortgages?
Green mortgages can be divided into two main categories: EPC-rated mortgages that give you a cheaper rate or cashback because your home is already energy-efficient; and green home improvement mortgages that give you lower rates or cashback if you commit to making your home more energy efficient.
EPC-rated mortgages apply to homes that have the highest EPC ratings of A or B. “Typically, rates may be slightly lower, usually up to 0.1 or 0.2 per cent, which can mean a significant saving on a large mortgage. We also see cashback incentives on some green products typically £250 or £500,” says Mark Humphrey, director of MHC Mortgages.
This type of mortgage won’t suit everyone and every home, but the majority of new builds will now fit this criterion, making this type of mortgage increasingly popular.
“This could be a great option for people who have just bought new energy efficient homes or who have just completed work to improve their home’s EPC rating,” says Terry Higgins, group MD of TNHG New Build Mortgages.
The rising cost of energy bills over the last few years has seen this type of green mortgage become a more attractive proposition to both lenders and borrowers.
“Initially we saw more lenders offering cashbacks or small discounts from their standard mortgage rates, for New Build homes, or those, typically with an A or B rated EPCs,” says Adrian MacDiarmid, head of mortgage lender relations at Barratt Redrow (BTRW.L).
“More recently, however, lenders have begun to acknowledge the link between energy efficiency, lower bills and the ability to afford more in mortgage repayments. We have now seen mortgages from Leeds Building Society, Accord, Halifax and TSB that will lend customers buying new homes more than they otherwise would have done.”
In contrast, home improvement mortgages are available to those who commit to upgrading their home and making it more energy efficient. “Lenders may offer you additional financing options or lower interest rates on borrowing when you commit to making green improvements to your home, such as installing heat pumps, double glazing, improved insulation, or solar panels,” says Higgins.
There are 61 green mortgage products on offer in the UK, according to the Green Finance Institute. ·Richard Newstead via Getty Images
What are the benefits?
Aside from helping the environment, whether that’s because your home is already energy efficient or because you make improvements to make it more so, green mortgages also help you futureproof your property.
While no proposals have been set out as yet, the government is considering requiring owner-occupied properties to have a minimum EPC rating of C by 2035. The average UK property is currently rated D.
There are financial benefits too — green mortgages offer slightly lower interest rates and cashback, while green improvement mortgages mean you can also reduce your energy bill.
What are the disadvantages?
There are several disadvantages that people need to be aware of before taking out a green mortgage. Firstly, the eligibility criteria are extremely strict and often only new builds qualify.
“If you dislike modern properties or new builds, it's rare to find ‘resale properties’ with an A or B EPC Rating. I've never organised a green mortgage for a client buying a re-sale property,” says Humphrey.
For home improvement green mortgages, it’s important to know from the offset that the cashback available may not cover the entire cost of the retrofit.
“The cost of upgrading a property may be prohibitive. For example, while Halifax green living reward may allow the borrower to obtain a £2,000 cashback for installing a heat pump, that will only partially offset the £7,500 cost, according to British Gas,” says Mark Harris, chief executive of mortgage broker SPF Private Clients.
“Things which make properties more energy efficient can also have an unwelcome impact — for example, there are fewer tales of complex solar panel leases but historically there have been issues. There have also been issues with spray foam insulation, where the property may have become more energy efficient but is also potentially unmortgageable.”
Even if your home does meet the criteria for a green mortgage, Harris flags that it still might not be the best option financially. “While the rates/borrowing are labelled ‘green’, it doesn’t necessarily mean that they are the most suitable products for a borrower.
"Cheaper rates or more suitable borrowing boundaries may be available elsewhere.”
Which banks offer green mortgages?
Green mortgages offer slightly lower interest rates and cashback, while green improvement mortgages mean you can also reduce your energy bill. ·Ridofranz via Getty Images
The Cooperative Bank
The Cooperative Bank's "Green" Mortgage Purchase range are EPC-rated mortgages. They include two-year and five-year fixed rate products with interest rates starts from 4.41%.
These mortgages require 80% to 95% loan-to-value (LTV), meaning buyers need to have at least 80% for a deposit.
They also require the property to have an EPC rating of A or B.
The Cooperative Bank also offers green home improvement mortgages with their "Green" Further Advance range of two-year and five-year fixed rate products.
Interest rates start from 4.14%. These products are 10 basis points (bps) lower than the equivalent non-green/mainstream product.
They are available for existing customers of the Co-operative Bank, Britannia, and Platform. Customers must use at least 50% of the borrowing for green home improvements and have to complete a personalised energy-saving improvement plan.
Halifax
Halifax, the UK’s biggest mortgage lender, offers their Green Mortgage with £250 cashback for energy efficient homes with an EPC rating of A or B.
It is available to customers who complete on a qualifying mortgage. The maximum LTV is 95%.
If buying uncompleted new build, customers need to obtain a Predicted Energy Assessment (PEA) from the builder.
The Green Mortgage excludes BTL applications, product transfers or if you’re borrowing more on your current Halifax mortgage.
The lender, owned by Lloyds (LLOY.L), also has a Green Living Reward mortgage product which offers cashback of up to £2,000 for a heat pump, £1,000 for solar panels or £500 for completing other eligible improvements, including double glazing or insulation.
Borrowers need to have applied for a new Halifax mortgage, additional borrowing or switched to a new deal after July 2024, hold a Halifax current account and complete an eligible home improvement within one year.
Green home improvement mortgages can offer cashback for installing things such as heat pumps, solar panels or double glazing. ·SolStock via Getty Images
HSBC
The Energy Efficient Homes Cashback mortgage from HSBC (HSBA.L) gives borrowers cashback of £750 or £1,250 depending on the mortgage being taken.
It requires the property to have an EPC rating of A or B.
Virgin Money
Virgin Money's Greener Mortgage, fixed for two or five years currently offers interest rates starting at 4.44% with £995 product fee, £200 cashback and a free valuation included.
Properties need to to have an EPC rating of A or B and you'll need a deposit of between 65% to 85% LTV.
The Retrofit Boost mortgage from Virgin Money offers up to £10,000 cashback but interest rates are higher than core range.
It is for borrowers who are purchasing or remortgaging a residential or BTL property and you must agree to use the cashback for energy-efficient improvements.
Ecology
Ecology Building Society's C-Change Discount mortgage offers up to 1.5% off the standard variable rate (SVR) across a selection of its residential mortgages, including self-build and renovation.
These green mortgages have a wide range of criteria, including bringing disused and derelict buildings back into sustainable use and lending for shared ownership and affordable housing is included.
Applicants need to demonstrate their home will have clear environmental benefits.
